• Alphabet, previously Google, reported healthy Q4 2015 earnings that topped analyst estimates.
• Google's core ad business saw a resurgence in growth aided by the company's change in ad format.
• Alphabet's non-core projects continue to be a drain on the company's profitability though Google's capex spending on these businesses has slowed down considerably.
• Alphabet stock appears well primed for long-term gains.

Alphabet Inc-C (Nasdaq:GOOG), previously known as Google, surged more than 8% in after market trading after the company delivered a healthy earnings beat in its debut earnings call on . Alphabet reported Q4 2015 revenue of $21.33B, up 17.8%Y/Y and $560M higher than the Wall Street consensus estimate. Alphabet's EPS of $8.67 was up 56.7% Y/Y and topped estimates by $0.58, partly aided by a lower tax rate.

This quarterly earnings call marked the first time that Google broke out its segment performance to allow investors to catch a glimpse of how its so-called moonshot projects are fairing. Google’s segment performance as follows:

Core Google-this includes Display Ads, Google Search, Maps, Google Play and YouTube. The segment revenue for Q4 2015 was up 18% to $21.8B. Full year revenue for the segment clocked in at $74.5B, up 13%Y/Y with operating income of $23.4B, up 23%Y/Y. Google Site revenue for the fourth quarter was up 20% Y/Y to $14.9B while revenue from Google’s partner sites climbed 7%Y/Y to $4.1B. Other revenue (hardware sales, Google Play, enterprise) was up 24% to $2.1B. Paid clicks, a closely watched metric, was up a healthy 17% Q/Q and 31%Y/Y partly buoyed by seasonality and partly by strong trends for YouTube, mobile search, and Google Shopping. Paid clicks by Google sites were up a robust 40%Y/Y while Google Network clicks grew only 2%Y/Y after being hurt by Google’s ongoing quality control efforts and competition. Google’s cost per click, another closely watched metric, fell 5% Q/Q and 13%Y/Y.

Other Bets--this segment consists of eight Alphabet non-core projects including self-driving cars, Google Fiber, X robotics lab, Calico, Google Capital, Google X, and Nest smart-home unit. The segment showed strong revenue growth but widening losses. Q4 2015 revenue for the segment was $151M, up 42%Y/Y, with an operating loss of $1.1B. Revenue for the full year clocked in at $448M, up 37% Y/Y, with an operating loss of $3.57B, almost double the 2014 operating loss figure of $1.94B. Despite the ballooning losses, investors were encouraged by the fact that Alphabet’s capital expenditure on its moonshot projects fell sharply in Q4 2015 to $869M from a hefty $3.55B in Q4 2014.

Altogether, this was a healthy report by Alphabet, which showed the company’s core business remains in the pink of health, while its next growth drivers such as YouTube and Google Play are doing well. Google has been counting on YouTube and Google Play to fire its next growth phase as its core-ad business slows down. Although Google did not break out the individual revenue figures for the two key segments, the company said that the YouTube, Google Play, Maps, Chrome, and Search all had garnered 1B+ MAUs. Other comments made by the search giant during the earnings call pointed to strong performance by the two segments. For instance Google said that YouTube’s TrueView ad format, where a video ad has to be watched from start to finish before being considered a paid click, had a major impact on the surge in volume of paid clicks. Google added that Google Play gross revenue surged 30% in 2015. Analysts estimate that YouTube and Google Play will contribute nearly 25% to Google’s top line in 2020 up from ~12% currently. The latest set of results by Google suggests that the company might achieve that feat earlier than projections.

Regarding Google’s falling cost per click, or CPC, the company said that changes in ad format that were responsible for growth in paid clicks had also served to lower ad prices. Since the company introduced most of these changes quite recently, investors can expect the trend to moderate as the quarters roll on.

Alphabet’s non-core projects continue to pull down the company’s profitability. But the segment’s healthy revenue growth, as well as Google’s rapidly falling capex, suggest that many of these businesses are maturing, which might help them become profitable before long.

Alphabet Earnings Investor Takeaway

Alphabet’s latest earnings report has exceeded Wall Street expectations, as the company’s recent changes to its ad-format have helped accelerate growth in its core ad business. Meanwhile Google’s next growth drivers including YouTube and Google Play continue doing well. This will help ease investor worries regarding a possible slowdown in the company’s ad business. Alphabet shares appear primed for long-term gains.